Cramer Says There's No Conspiracy Between Research and Trading

Publish date:

People who think Wall Street firms routinely rig their research departments to help their trading desks don't know what the $#@$#@ they are talking about.

Every time some firm makes a key research upgrade or downgrade I hear from readers that the brokerage house is making the change because the firm happens to be long or short the stock in question. So let's say

Goldman Sachs



tomorrow, the supposition will be that the "firm" is doing so because the trading desk is long it.


People who make these charges have obviously never worked at a major trading house. Nothing could be further from the truth. In fact, analysts routinely blindside their own desks, upgrading or downgrading stocks without regard to the firm's p&l.

Before you think I am just some apologist for an industry that I toil in everyday, remember I am a guy who sees conspiracies everywhere, who is willing to say that he thinks the whole market may have been manipulated. I am Mr. Grassy Knoll. I don't fear any of these firms or their retaliation if I think they are wrong, dishonest or corrupt.

But I can't attack them for something they don't do. Look, brokerage firms don't work like monoliths. The research side typically has contempt for the trading side. The trading side typically thinks the research guys are a bunch of geeks. You hardly ever see these guys together, let alone have them conspire to make money for their firm.

More important, no one at these firms, with the exception of the top partners, is trying to make money for the firm. They are trying to make money for themselves. It simply doesn't help a research guy to give a trading guy a heads-up about what is going to happen, and no credible research analyst would ever recommend something simply because the trading desk happens to be stuck in a bad position.

There's a simple reason for that, too. Credibility is a very precious asset on the research side. If any clients thought that the analyst was simply touting what a desk was long, or even gave the appearance of doing so, that analyst's credibility would be tarnished forever. Subsequently, he would lose his clout, or ability to move stocks. And his bonus would be cut to shreds.

In fact, the way to make a name for yourself as an analyst is to stand up to the trading desk and to say no to corporate finance when they try to jam some underwriting down your throat.

Was it always this way? It was that way when I was at Goldman in the 80s. And if anything, it has become even more honest as the pay scales for analysts have risen beyond anyone's imagination. These days powerful analysts can routinely command several million dollars in salary.

You don't want to lose that kind of dough for a crummy 7/8ths of a dollar on some stock that some guy you don't like is lugging around on your firm's trading desk.

James J. Cramer is manager of a hedge fund and co-chairman of

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to